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MarketScreener Homepage  >  Equities  >  Nyse  >  C&J Energy Services, Inc.    CJ

C&J ENERGY SERVICES, INC.

(CJ)
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C&J ENERGY SERVICES : Management's Discussion and Analysist of Financial Condition and Results of Operations (form 10-Q)

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08/07/2019 | 06:04am EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with (i) the accompanying unaudited
consolidated financial statements and the related notes thereto included
elsewhere in this Quarterly Report, (ii) the audited consolidated financial
statements and notes thereto included in our 2018 Annual Report, and (iii) Part
II, Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in our 2018 Annual Report.



This Quarterly Report contains forward-looking statements based on our current
expectations, estimates and projections about our operations and the industry in
which we operate. Our actual results may differ materially from those discussed
in any forward-looking statement because of various risks and uncertainties,
including those described in the sections titled "Cautionary Note Regarding
Forward-Looking Statements" in Part I, Item 1 of this Quarterly Report and "Risk
Factors" in Part II, Item 1A of this Quarterly Report.



                                      -29-
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Introductory Note



C&J Energy Services, Inc., a Delaware corporation ("C&J," the "Company," "we,"
"us" or "our"), is a leading provider of well construction, well completion,
well support and other complementary oilfield services to oil and gas
exploration and production ("E&P") companies throughout the continental United
States. We offer a comprehensive suite of services throughout the life cycle of
the well, including hydraulic fracturing, cased-hole wireline and pumpdown,
cementing, coiled tubing, rig services, fluids management and other completion
and well support services.



Proposed Merger with Keane



On June 16, 2019, the Company entered into the Merger Agreement with Keane.
Following the Merger, we will be a direct, wholly owned subsidiary of Keane. The
Merger is expected to close in the fourth quarter of 2019, pending the
satisfaction of certain customary conditions and the approval of the Merger by
the affirmative vote of holders of a majority of the outstanding common stock of
the Company and approval of the issuance of common stock of Keane to C&J
stockholders in connection with the Merger by the affirmative vote of holders of
a majority of the outstanding common stock of Keane. In July, we received
notification of early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect
to the proposed Merger.  The termination satisfies one of the conditions to the
closing of the proposed Merger. Please see Note 1 - Organization, Nature of
Business and Summary of Significant Accounting Policies in Part I, Item 1
"Financial Statements" of this Quarterly Report for additional details on the
proposed Merger with Keane.



We have agreed to operate our business in the ordinary course during the period
between the execution of the Merger Agreement and the effective time of the
proposed Merger, subject to specific exceptions set forth in the Merger
Agreement, and have agreed to certain other customary restrictions on our
operations, as set forth in the Merger Agreement. Following consummation of the
Merger, a combined board of directors and a combined executive team will drive
strategy and integration to seek realization of expected synergies and a strong
combined company. The combined company is expected to have greater scale and
density across services and geographies.



Overview



Our revenues and profits are generated by providing services and equipment to
customers who operate oil and gas properties and invest capital to drill new
wells and enhance production or perform maintenance on existing wells. Our
results of operations in our core service lines are driven primarily by five
interrelated, fluctuating variables: (1) the drilling, completion and production
activities of our customers, which is primarily driven by oil and natural gas
prices and directly affects the demand for our services; (2) the price we are
able to charge for our services and equipment, which is primarily driven by the
level of demand for our services and the supply of equipment capacity in the
market; (3) the cost of materials, supplies, labor and technology involved in
providing our services, and our ability to pass those costs on to our customers;
(4) our activity, or "utilization" levels; and (5) the quality, safety and
efficiency of our service execution.



Our operating strategy is focused on maintaining high asset utilization levels
to maximize revenue generation and sustainable pricing levels to ensure
profitability, while controlling cost to drive returns. We monitor factors that
impact our asset utilization and pricing levels, including current and expected
customer activity levels. Each segment measures asset utilization as follows:



•    For our Completion Services segment, we measure our asset utilization
levels primarily by the total number of days that our asset base works on a
monthly basis, based on the available working days per month, which excludes
scheduled maintenance days. We generally consider an asset to be working on
those days that it is at or in transit to a job location, regardless of the
number of hours worked or whether it generated any revenue during such time.



•    In our Well Construction and Intervention ("WC&I") Services segment, we
measure our asset utilization levels primarily by the total number of days that
our asset base works on a monthly basis, based on the available working days per
month. In our coiled tubing business, we measure certain asset utilization
levels by the hour to better understand measures between daylight and 24-hour
operations.


• In our Well Support Services segment, we measure activity levels primarily by the number of hours our assets work on a monthly basis, based on the available working days per month.

                                      -30-
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While asset utilization is helpful for purposes of assessing our overall
activity levels and customer demand, given the variance in revenue and
profitability from job to job, depending on the type of service to be performed
and the equipment, technology, labor and consumables required for the job, as
well as competitive factors and market conditions in the region in which the
services are performed, asset utilization is not necessarily indicative of our
financial and/or operational performance and should not be given undue reliance.
For additional information about factors impacting our business and results of
operations, please see "Industry Trends and Outlook" in this Part I, Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."



To help manage asset utilization and profitability in our operations, our
management monitors revenue, Adjusted EBITDA by reportable business segment and
certain operational data indicative of utilization levels, which information is
provided for each of our operating segments under "Reportable Segments" in this
Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Management evaluates the financial performance of our
reportable business segments primarily based on such segment's Adjusted EBITDA
because management believes Adjusted EBITDA provides important information about
the activity and profitability of our lines of business within each reportable
business segment and aids us in analytical comparisons for purposes of, among
other things, efficiently allocating our assets and resources. Adjusted EBITDA
at the segment level is not considered to be a non-GAAP financial measure as it
is our segment measure of profit or loss and is required to be disclosed under
GAAP pursuant to ASC 280. Please read Note 8 - Segment Information in Part I,
Item 1 "Financial Statements" of this Quarterly Report, for the definition and
calculation of Adjusted EBITDA.



                                      -31-
--------------------------------------------------------------------------------



Results of Operations



The following is a comparison of our results of operations for the three and six
months ended June 30, 2019 compared to the three and six months ended June 30,
2018.


Results for the Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018




The following table summarizes the change in our results of operations for the
three months ended June 30, 2019 when compared to the three months ended June
30, 2018:



                                                  Three Months Ended June 30,
                                                    2019                 2018          $ Change
                                                                 (In thousands)
Completion Services:
Revenue                                        $       322,423$    412,895$   (90,472 )
Operating income                               $         5,450       $     55,208$   (49,758 )Well Construction and Intervention Services:
Revenue                                        $        72,709$     99,086$   (26,377 )
Operating income (loss)                        $       (83,988 )$      8,311$   (92,299 )Well Support Services:
Revenue                                        $       105,950$     98,540$     7,410
Operating loss                                 $        (4,208 )$     (3,110 )$    (1,098 )

Corporate / Elimination:
Operating loss                                 $       (27,734 )$    (29,515 )$     1,781

Combined:
Revenue                                        $       501,082$    610,521$  (109,439 )

Costs and expenses:
Direct costs                                           408,514            463,602         (55,088 )
Selling, general and administrative expenses            54,562             59,908          (5,346 )
Research and development                                 1,696              1,681              15
Depreciation and amortization                           58,093             54,387           3,706
Impairment expense                                      79,935                  -          79,935
Loss on disposal of assets                               8,762                 49           8,713
Operating income (loss)                               (110,480 )           30,894        (141,374 )
Other income (expense):
Interest expense, net                                     (442 )           (2,185 )         1,743
Other income (expense), net                               (449 )           (1,106 )           657
Total other income (expense)                              (891 )           (3,291 )         2,400
Income (loss) before income taxes                     (111,371 )           27,603        (138,974 )
Income tax benefit                                      (1,065 )             (893 )          (172 )
Net income (loss)                              $      (110,306 )$     28,496$  (138,802 )




                                      -32-
--------------------------------------------------------------------------------



Revenue



Revenue decreased $109.4 million, or 17.9%, to $501.1 million for the three
months ended June 30, 2019, as compared to $610.5 million for the three months
ended June 30, 2018.  The decrease in revenue was primarily due to (i) a
decrease of $90.5 million in our Completion Services segment primarily due to
challenging market conditions within our fracturing service line as a result of
an oversupply of fracturing fleets in West Texas causing lower pricing and
utilization, as well as pricing pressures and increased competition within our
wireline and pumpdown service lines, and (ii) a decrease of $26.4 million in our
WC&I Services segment as a result of pricing pressure and lower utilization
within our cementing service line, as well as decreased activity levels within
our coiled tubing service line, offset by an increase of $7.4 million in our
Well Support Services segment as a result of improved utilization within rig
services and fluids management services, primarily in California.



Direct Costs



Direct costs decreased $55.1 million, or 11.9%, to $408.5 million for the three
months ended June 30, 2019, as compared to $463.6 million for the three months
ended June 30, 2018.  The decrease in direct costs was primarily due to lower
variable costs as a result of reduced overall utilization within our Completion
Services and WC&I Services segments.



As a percentage of revenue, direct costs increased to 81.5% for the three months
ended June 30, 2019, as compared to 75.9% for the three months ended June 30,
2018.  The increase was primarily due to pricing pressures across most service
lines within the Completions Services and WC&I Services segments and reduced
efficiencies as a result of lower utilization.



Selling, General and Administrative Expenses ("SG&A")




SG&A decreased $5.3 million, or 8.9%, to $54.6 million for the three months
ended June 30, 2019, as compared to $59.9 million for the three months ended
June 30, 2018.  The decrease in SG&A was primarily driven by lower labor and
employee related costs due to headcount reductions, lower restructuring charges
and a reduction in other general and administrative expenses, partially offset
by an increase in severance expense associated with the departure of two
executive officers during the second quarter of 2019 as well as an increase in
merger/transaction-related costs associated with the Merger.



Depreciation and Amortization Expense ("D&A")




D&A increased $3.7 million, or 6.8%, to $58.1 million for the three months ended
June 30, 2019, as compared to $54.4 million for the three months ended June 30,
2018. The increase in D&A was primarily the result of capital expenditures
associated with equipment placed into service after the second quarter of 2018.



Impairment Expense



Due to the softness in the energy equity markets and the consequential negative
impact on our market capitalization as of June 30, 2019, when compared to our
book value of equity, we determined that it was necessary to test property,
plant and equipment ("PP&E") and intangible assets for recoverability during the
second quarter of 2019. Based on our assessment, we recorded impairment expense
for the three months ended June 30, 2019 of $79.9 million, consisting of $56.2
million related to definite-lived intangible assets and $23.7 million related to
PP&E within the WC&I Services segment.



We did not recognize any impairment expense for the three months ended June 30, 2018.




Loss on Disposal of Assets



As of June 30, 2019, we classified certain service equipment related to the
fluids management service line within our Well Support Services segment as
assets held for sale in anticipation of the closing of the sale during the third
quarter of 2019.  We recognized a loss on disposition of $8.0 million to reduce
the carrying value of the assets to their estimated fair values less cost to
sell, based on the expected sales price.



Income Taxes



We recorded an income tax benefit of $1.1 million for the three months ended
June 30, 2019, at an effective rate of 1.0%, compared to an income tax benefit
of $0.9 million for the comparable prior year period, at a negative effective
rate of (3.2)%. The increase in the effective tax rate, and the resulting
effective tax rate below the expected statutory rate, was primarily due to the
significant decrease in earnings before tax from prior year and the existence
and adjustment of our valuation allowance applied against certain deferred tax
assets, including net operating loss carryforwards.



                                      -33-
--------------------------------------------------------------------------------

Results for the Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018




The following table summarizes the change in our results of operations for the
six months ended June 30, 2019 when compared to the six months ended June 30,
2018:



                                                 Six Months Ended June 30,
                                                    2019             2018          $ Change
                                                               (In thousands)
Completion Services:
Revenue                                        $      649,522$   787,040$  (137,518 )
Operating income                               $       16,237$   113,283$   (97,046 )Well Construction and Intervention Services:
Revenue                                        $      151,802$   186,503$   (34,701 )
Operating income (loss)                        $      (87,362 )$    13,663$  (101,025 )Well Support Services:
Revenue                                        $      210,527$   189,978$    20,549
Operating loss                                 $       (9,017 )$   (11,876 )$     2,859

Corporate / Elimination:
Operating loss                                 $      (53,109 )$   (63,834 )$    10,725

Combined:
Revenue                                        $    1,011,851$ 1,163,521$  (151,670 )

Costs and expenses:
Direct costs                                          824,853         882,599         (57,746 )
Selling, general and administrative expenses          108,246         125,843         (17,597 )
Research and development                                3,501           3,553             (52 )
Depreciation and amortization                         117,849         100,730          17,119
Impairment expense                                     79,935               -          79,935
(Gain) loss on disposal of assets                      10,718            (440 )        11,158
Operating income (loss)                              (133,251 )        51,236        (184,487 )
Other income (expense):
Interest expense, net                                    (789 )        (2,613 )         1,824
Other income (expense), net                                16            (486 )           502
Total other income (expense)                             (773 )        (3,099 )         2,326
Income (loss) before income taxes                    (134,024 )        48,137        (182,161 )
Income tax benefit                                       (145 )          (953 )           808
Net income (loss)                              $     (133,879 )$    49,090$  (182,969 )




                                      -34-
--------------------------------------------------------------------------------



Revenue



Revenue decreased $151.7 million, or 13.0%, to $1.0 billion for the six months
ended June 30, 2019, as compared to $1.2 billion for the six months ended June
30, 2018.  The decrease in revenue was primarily due to (i) a decrease of $137.5
million in our Completion Services segment primarily due to challenging market
conditions within our fracturing service line as a result of an oversupply of
fracturing fleets in West Texas causing lower pricing and utilization, as well
as pricing pressures and increased competition within our wireline and pumpdown
service lines, and (ii) a decrease of $34.7 million in our WC&I Services segment
as a result of pricing pressure and lower utilization within our cementing
service line, as well as decreased activity levels within our coiled tubing
service line, offset by an increase of $20.5 million in our Well Support
Services segment as a result of improved utilization within rig services and
fluids management services, primarily in California.



Direct Costs



Direct costs decreased $57.7 million, or 6.5%, to $824.9 million for the six
months ended June 30, 2019, as compared to $882.6 million for the six months
ended June 30, 2018.  The decrease in direct costs was primarily due to lower
variable costs as a result of reduced overall utilization within our Completions
Services and WC&I Services segments.



As a percentage of revenue, direct costs increased to 81.5% for the six months
ended June 30, 2019, as compared to 75.9% for the six months ended June 30,
2018.  The increase was primarily due to pricing pressures across most service
lines within the Completion Services and WC&I Services segments and reduced
efficiencies as a result of lower utilization.



Selling, General and Administrative Expenses




SG&A decreased $17.6 million, or 14.0%, to $108.2 million for the six months
ended June 30, 2019, as compared to $125.8 million for the six months ended June
30, 2018.  The decrease in SG&A was primarily driven by lower labor and employee
related costs due to headcount reductions, lower restructuring charges and a
reduction in other general and administrative expenses, partially offset by an
increase in merger/transaction-related costs associated with the Merger.



Depreciation and Amortization Expense




D&A increased $17.1 million, or 17.0%, to $117.8 million for the six months
ended June 30, 2019, as compared to $100.7 million for the six months ended June
30, 2018.  The increase in D&A was primarily the result of capital expenditures
associated with equipment placed into service after the second quarter of 2018.



Impairment Expense



Due to the softness in the energy equity markets and the consequential negative
impact on our market capitalization as of June 30, 2019, when compared to our
book value of equity, we determined that it was necessary to test PP&E and
intangible assets for recoverability during the second quarter of 2019. Based on
our assessment, we recorded impairment expense during the six months ended June
30, 2019 of $79.9 million, consisting of $56.2 million related to definite-lived
intangible assets and $23.7 million related to PP&E within the WC&I Services
segment.


We did not recognize any impairment expense for the six months ended June 30, 2018.




Loss on Disposal of Assets



As of June 30, 2019, we classified certain service equipment related to the
fluids management service line within our Well Support Services segment as
assets held for sale in anticipation of the closing of the sale during the third
quarter of 2019.  We recognized a loss on disposition of $8.0 million to reduce
the carrying value of the assets to their estimated fair values less cost to
sell, based on the expected sales price.  The remaining losses were from normal
course asset dispositions.



                                      -35-
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Income Taxes



We recorded an income tax benefit of $0.1 million for the six months ended June
30, 2019, at an effective rate of 0.1%, compared to an income tax benefit of
$1.0 million for the comparable prior year period, at a negative effective rate
of (2.0)%. The increase in the effective tax rate, and the resulting effective
tax rate below the expected statutory rate, was primarily due to the significant
decrease in earnings before tax from the prior year and the existence and
adjustment of our valuation allowance applied against certain deferred tax
assets, including net operating loss carryforwards.



Reportable Segments


As of June 30, 2019, our reportable business segments were:

• Completion Services, which consists of the following businesses and service

lines: (1) fracturing services; (2) cased-hole wireline and pumpdown services;

    and (3) completion support services, which includes our research and
    technology ("R&T") department.



Well Construction and Intervention Services, which consists of the following

businesses and service lines: (1) cementing services and (2) coiled tubing

    services.



Well Support Services, which consists of the following businesses and service

    lines: (1) rig services; (2) fluids management services; and (3) other
    specialty well site services.




During the first quarter of 2018, we decided to exit our directional drilling
business and artificial lift business. We ceased directional drilling operations
during the first quarter of 2018.  In addition, we completed the sale of
substantially all of the assets and inventory associated with the artificial
lift business during 2018.



Our reportable business segments are described in more detail below; for
financial information about our reportable business segments, including revenue
from external customers and total assets by reportable business segment, please
see Note 8 - Segment Information in Part I, Item 1 "Financial Statements" of
this Quarterly Report.



Completion Services



The core services provided through our Completion Services segment are
fracturing, cased-hole wireline and pumpdown services. Our completion support
services are focused on supporting the efficiency, economics, safety and
effectiveness of our operations. Our R&T department provides in-house
manufacturing capabilities that help to reduce operating cost and enable us to
offer more technologically advanced, safety enhanced and efficiency-focused
completion services. For example, through our R&T department we manufacture the
data control instruments used in our fracturing operations and the perforating
guns and addressable switches used in our wireline operations; these products
are also sold to third-parties. The majority of revenue for this segment is
generated by our fracturing business.



During the second quarter of 2019, our fracturing business deployed, on average,
approximately 660,000 hydraulic horsepower ("HHP") out of a fleet of
approximately 860,000 HHP as of June 30, 2019. Our typical horizontal fleet size
consists of 20 pumps, or approximately 40,000 HHP, and our typical vertical
fleet size consists of 10 pumps, or approximately 20,000 HHP. In our cased-hole
wireline and pumpdown businesses, during the second quarter of 2019, we
deployed, on average, approximately 57 wireline trucks and 79 pumpdown units.
Not all of our deployed assets are utilized fully, or at all, at any given time,
due to, among other things, routine scheduled maintenance and downtime.



                                      -36-
--------------------------------------------------------------------------------




The following table presents revenue, Adjusted EBITDA and certain operational
data for our Completion Services segment for the second quarter of 2019, the
first quarter of 2019, and the second quarter of 2018. Please read Note 8 -
Segment Information in Part I, Item 1 "Financial Statements" of this Quarterly
Report, for the definition and calculation of Adjusted EBITDA. For additional
information, please also read "Introductory Note and Overview" in this Part I,
Item 2 "Management's Discussion and Analysis of Financial Condition and Results
of Operations."



                                                                    Three Months Ended
                                                  June 30, 2019       March 31, 2019       June 30, 2018
                                                                      (In thousands)
Revenue
Fracturing                                       $       219,661$        236,041$       288,855
Cased-hole Wireline & Pumpdown                            91,863               82,637             115,377
Other                                                     10,899                8,421               8,663
Total revenue                                    $       322,423$        327,099$       412,895

Adjusted EBITDA                                  $        47,706     $         54,435     $        84,118

Average active hydraulic fracturing horsepower           660,000              660,000             675,000
Total fracturing stages                                    4,743                5,100               4,823

Average active wireline trucks                                57                   67                  69

Average active pumpdown units                                 79                   81                  76




Revenue and profitability in our Completion Services segment decreased
sequentially primarily due to lower utilization in our fracturing business.
During the second quarter, we experienced increased white space in our frac
calendar due to unexpected scheduling gaps and drilling rig delays in select
operating basins.  In line with our returns-focused strategy, we continued to
reduce our overall cost structure, and we idled two horizontal and one vertical
fracturing fleet by the end of the second quarter to more appropriately align
our asset base with current customer demand and market conditions.  In our
wireline and pumpdown businesses, revenue increased sequentially as customer
activity levels improved in the Bakken, but profitability was essentially flat
due to the competitive pricing environment, higher consumables costs, and
reduced asset deployment in several basins as customers began to reduce their
deployed fracturing fleets based on prevailing market conditions.  In response,
we continued to focus on efficient customers and further streamlined costs in
both our wireline and pumpdown businesses, which included reallocating assets to
more profitable locations and closing select operating districts in line with
our disciplined returns-focused strategy.



Well Construction and Intervention Services




The core services provided through our WC&I Services segment are cementing and
coiled tubing services. Although we previously provided directional drilling
services through this segment, we ceased operations during the first quarter of
2018. The majority of revenue for this segment is generated by our cementing
business.



During the second quarter of 2019, our cementing business deployed, on average,
approximately 65 cementing units; and in our coiled tubing business, we
deployed, on average, approximately 16 coiled tubing units during the quarter.
Our deployed assets may not be utilized fully, or at all, at any given time, due
to, among other things, routine scheduled maintenance and downtime.



                                      -37-
--------------------------------------------------------------------------------




The following table presents revenue, Adjusted EBITDA and certain operational
data for our Well Construction and Intervention Services segment for the second
quarter of 2019, the first quarter of 2019, and the second quarter of 2018.
Please read Note 8 - Segment Information in Part I, Item 1 "Financial
Statements" of this Quarterly Report, for the definition and calculation of
Adjusted EBITDA. For additional information, please also read "Introductory Note
and Overview" in this Part I, Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations."



                                                                 Three Months Ended
                                                June 30, 2019      March 31, 2019       June 30, 2018
                                                                   (In thousands)
Revenue
Cementing                                      $        48,369$        54,097$        69,328
Coiled Tubing                                           24,340              24,996              29,758
Total revenue                                  $        72,709$        79,093$        99,086

Adjusted EBITDA                                $         6,947     $         6,514     $        19,940

Average active cementing units                              65                  68                  73

Average active coiled tubing units                          16                  14                  16




Segment revenue decreased sequentially due to lower customer activity levels and
a more competitive pricing environment in our cementing business, but segment
profitability increased primarily due to asset redeployment in our coiled tubing
business and a more streamlined cost structure in our cementing business. In our
coiled tubing business, we returned two large diameter units in West Texas to
large, efficient customers that increased overall asset utilization, which was
partially offset by continued soft activity levels in both South Texas and the
Mid-Continent. We continued to experience lower overall drilling rig count and a
competitive pricing environment in our cementing business that negatively
affected customer activity levels, especially in our largest operating basin of
West Texas and in the Mid-Continent. In response and in line with our returns
focused strategy, we further reduced our cost structure by stacking lower
utilized equipment, consolidating facilities, closing unprofitable districts,
and managing labor and operational costs lower.



Well Support Services



Our Well Support Services segment focuses on post-completion activities at the
well site, including rig services, such as workover and plug and abandonment,
fluids management services, and other specialty well site services.  Although we
previously provided artificial lift applications through this segment, we
completed the sale of substantially all of the assets and inventory associated
with such business on July 2, 2018.  Additionally, in response to the highly
competitive landscape and reflecting our returns-focused strategy, we have
continued to focus on operational rightsizing measures to better align these
businesses with current market conditions, which has included closing facilities
and idling unproductive equipment.  For example, during the first quarter of
2018, we exited the condensate hauling business in South Texas, and late in the
second quarter of 2018, we shut-down our East Texas rig services operations.
The majority of revenue for this segment is generated by our rig services
business, and we consider rig services and fluids management to be the core
businesses within this segment.



During the second quarter of 2019, our rig services business deployed, on
average, approximately 123 workover rigs per workday.  In our fluids management
business during the second quarter of 2019, we deployed, on average,
approximately 652 fluid services trucks per workday and approximately 1,239 frac
tanks per workday, and we owned 23 private salt water disposal wells for fluids
disposal purposes.  However, not all of our deployed assets are utilized fully,
or at all, at any given time, due to, among other things, routine scheduled
maintenance and downtime.



                                      -38-
--------------------------------------------------------------------------------




The following table presents revenue, Adjusted EBITDA, and certain operational
data for our Well Support Services segment for the second quarter of 2019, the
first quarter of 2019, and the second quarter of 2018.  Please read Note 8 -
Segment Information in Part I, Item 1 "Financial Statements" of this Quarterly
Report, for the definition and calculation of Adjusted EBITDA. For additional
information, please also read "Introductory Note and Overview" in this Part I,
Item 2 "Management's Discussion and Analysis of Financial Condition and Results
of Operations."



                                                                  Three Months Ended
                                                June 30, 2019       March 31, 2019       June 30, 2018
                                                                    (In thousands)
Revenue
Rig Services                                   $        58,489     $         55,398     $        51,716
Fluids Management                                       36,913               37,860              34,128
Other Special Well Site Services                        10,548               11,319              12,696
Total revenue                                  $       105,950$        104,577$        98,540

Adjusted EBITDA                                $        13,383     $          6,988     $        11,437

Average active workover rigs                               145                  149                 143
Total workover rig hours                                95,985               96,208              93,911

Average active fluids management trucks                    652                  660                 636
Total fluids management truck hours                    335,892              337,306             310,445




Segment revenue and profitability increased sequentially due to higher customer
activity levels in most of our operating basins, improved weather conditions,
and additional workdays with longer daylight hours characteristic of the second
quarter. In our rig services business, we benefited from improved customer
activity levels in both California and the Bakken, which was partially offset by
decreased workover rig count in West Texas. In addition, we achieved our highest
deployed rig counts in over a year in both California and the Mid-Continent due
to improved maintenance and completion-driven activities. In our fluids
management business, we deployed additional trucks in California to meet growing
customer demand for fluids hauling and disposal services.



Industry Trends and Outlook



We face many challenges and risks in the industry in which we operate. Although
many factors contributing to these risks are beyond our ability to control, we
continuously monitor these risks and have taken steps to mitigate them to the
extent practicable. In addition, while we believe that we are well positioned to
capitalize on available growth opportunities, we may not be able to achieve our
business objectives, and consequently, our results of operations may be
adversely affected. Please read the factors described in the sections titled
"Cautionary Note Regarding Forward-Looking Statements" in Part I, Financial
Information and "Risk Factors" in Part II, Item 1A of this Quarterly Report for
additional information about the known material risks that we face.



We seek to manage our business in line with demand for services and try to make
adjustments as necessary to effectively respond to changes in market conditions,
customer activity levels, pricing for our services and equipment, and
utilization of our equipment, technology and personnel. Our response to the
industry's persistent uncertainty has been to maintain sufficient liquidity and
a conservative capital structure, exercise discipline with respect to capital
expenditures and monitor our discretionary spending. We take a measured approach
to asset deployment, balancing our view of current and expected customer
activity levels with a focus on generating positive returns for our
shareholders. Our priorities remain to drive revenue by maximizing utilization,
to maintain sustainable pricing to ensure profitability, to improve margins
through cost controls, to protect and grow our market share by focusing on the
quality, safety and efficiency of our service execution, and to ensure that we
are strategically positioned to capitalize on constructive market dynamics.



                                      -39-
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Completion Services Outlook



As we move into the third quarter, we expect revenue in our fracturing business
to decline as several recent customer additions to our frac calendar will be
partially offset by customer budget exhaustion and select customers delaying
completions into next year. We will continue to closely monitor for signs of
customer budget exhaustion as we progress through the third quarter, which could
result in the idling of additional fracturing equipment depending on prevailing
market conditions and customer demand. Current market conditions remain volatile
as the supply and demand balance of horsepower in the market continues to be
unfavorable for service providers and customers remain very price sensitive. We
continue to focus on lowering our overall cost structure and to more closely
align with dedicated customers with proven track records of efficient
operations, many of which we have created long-term relationships with over the
past several years. In our wireline and pumpdown businesses, we expect the
pricing environment to remain competitive, but activity levels should remain
stable throughout the third quarter based on current customer feedback. With
that said, we are preparing for the possibility of customer budget exhaustion as
we exit the third quarter, which could lead to lower overall activity levels and
reduced asset deployment.


Well Construction and Intervention Services Outlook




We currently expect that our WC&I Services segment will experience decreased
activity levels in the third quarter primarily due the declining drilling rig
count, reduced asset deployment, and a continued competitive pricing environment
in our cementing business. Despite our continued efforts to reduce our overall
cost structure and improve profitability in our cementing business, market
conditions remain challenged and customers remain very price sensitive. We will
continue with our strategy of reducing costs and focusing on efficient
customers, including cross-selling to efficient customers in several of our
other core businesses. In our coiled tubing business, we expect activity levels
to improve with the full quarter benefit of recently returned large diameter
units to our most efficient customers in West Texas. In addition, we have made
organizational and management changes within our coiled tubing business in both
South Texas and the Mid-Continent, which should result in improved operational
and financial performance in those core operating basins.



Well Support Services Outlook



We expect flat to slightly improved activity levels in our rig services and
special services businesses in the third quarter as customer activity levels
continue to improve in most of our core operating basins. We are focused on our
strategy of deploying additional assets with steady, efficient customers in most
of our core operating basins. In our rig services business, we will focus on
increasing profitable market share primarily in California, the Rocky Mountains,
South Texas and the Mid-Continent, and we should benefit from further cost
savings as we continue to right size our operational cost structure and
consolidate districts.



With respect to our fluids management business, on July 31, 2019, we closed the
sale of the majority of our South Texas and West Texas fluids management assets,
which will reduce our fluids management revenue in the third quarter.  We will
focus on growing market share and deploying additional assets in California to
meet growing fluids management and disposal demand.



We continue to explore potential strategic opportunities for our Well Support Services segment that would enable us to focus more on growing our completion-oriented, new well focused businesses.



Regulations


The discussion set forth under Item 1. "Business - Government Regulations and Environmental, Health and Safety Matters" in our 2018 Annual Report is incorporated herein by reference.

                                      -40-
--------------------------------------------------------------------------------




On March 8, 2018, the President issued two Proclamations directing the
imposition, effective March 23, 2018, of ad valorem tariffs of 25% on certain
imported steel products and 10% on certain imported aluminum products from all
countries, with the exception of Canada and Mexico. Subsequently, on March 22,
2018, the President issued two additional Proclamations that exempted, in
addition to Canada and Mexico, several additional countries from the remedial
tariff measures, as follows: (i) Argentina; (ii) Australia; (iii) Brazil; (iv)
the 28 member countries of the European Union; and (v) South Korea. In
Proclamations issued on April 30, 2018, the President: (i) permanently exempted
South Korea from the imposition of tariffs on imported steel, while allowing
tariffs to be imposed on imported aluminum; (ii) extended the steel and aluminum
tariff exemptions for Argentina, Australia, and Brazil indefinitely to allow for
continued negotiations; and (iii) extended the steel and aluminum tariff
exemptions for Canada, Mexico, and the 28 member countries of the European Union
to allow for continued negotiations, but only through May 31, 2018. In addition
to possible country-based exemptions, the United States has established a
protocol whereby individuals or entities using any of the affected steel or
aluminum products in business activities, such as manufacturing, may request the
exclusion of individual products from the imposition of tariffs. On May 31,
2018, the U.S. announced that it would also impose steel and aluminum tariffs on
Canada, Mexico, and the 28 member countries of the European Union. In addition,
Argentina, Australia, Brazil, and South Korea implemented measures to address
the impairment to U.S. national security attributable to steel and aluminum
imports that were deemed satisfactory to the United States. As a result, imports
of steel and/or aluminum from these countries have been exempted from the
imposition of tariff-based remedies, but, with the exception of Australia, the
United States has implemented quantitative restrictions in the form of absolute
quotas, meaning that imports in excess of the allotted quota will be disallowed.
As of May 17, 2019, the United States has lifted steel and aluminum tariffs on
Canada and Mexico.



Our R&T department is primarily engaged in the engineering and production of
certain parts and components, such as perforating guns and addressable switches,
which are used in the completion process. Certain of these items, particularly
perforating guns used in our wireline operations, are manufactured using
imported steel tubing, which is subject to a 25% tariff. We expect that,
depending on the ultimate outcome of the country exemption and product exclusion
processes described above, our raw material costs will increase and result in
corresponding increases in the price of our finished goods. Further, in addition
to the products manufactured by our R&T department, we expect that the costs of
other high steel content products used in conjunction with our fracturing and
coiled tubing operations, specifically power ends, fluid ends, treating iron and
coiled tubing strings, will also increase as we expect the manufacturers of such
goods to pass along the net effect the tariffs have on the cost of manufacturing
such goods. Furthermore, U.S. trade policy and tariffs may change, and result in
increases on the prices of our raw materials and finished goods.



For additional information, please see "Liquidity and Capital Resources" and "Reportable Segments" in this Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations," in addition to "Cautionary Note Regarding Forward-Looking Statements" in Part I, Financial Information and "Risk Factors" in Part II, Item 1A of this Quarterly Report.

Liquidity and Capital Resources

Sources and Uses of Liquidity and Capital Resources




Our primary sources of liquidity have historically included, and we have funded
our capital expenditures with, cash flows from operations, proceeds from public
offerings of our common stock and borrowings under debt facilities. Our ability
to generate future cash flows is subject to a number of variables, many of which
are outside of our control, including the drilling, completion and production
activity by our customers, which is highly dependent on oil and gas prices. See
Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Industry Trends and Outlook" for additional discussion
of certain factors that impact our results and the market challenges within our
industry. Please also read "Financial Condition and Cash Flows" below for
information about net cash provided by or used in our operating, investing and
financing activities.



Our financial performance and condition has remained strong during the three
months ended June 30, 2019, and we have maintained a strong balance sheet and a
conservative capital structure.  As of June 30, 2019, we had a cash balance of
$114.4 million and no borrowings drawn on our asset-based revolving credit
agreement with, among other lenders, JPMorgan Chase Bank, N.A., as
administrative agent, which matures May 1, 2023 (the "Credit Facility"), which
had $265.6 million of available borrowing capacity after taking into
consideration outstanding letters of credit totaling $31.0 million.  This
resulted in total liquidity of $380.0 million as of June 30, 2019.  As of
August 2, 2019, we had a cash balance of approximately $125.4 million and no
borrowings drawn on our Credit Facility, which had $265.6 million of available
borrowing capacity after taking into consideration our current outstanding
letters of credit totaling $31.0 million, resulting in total liquidity of
approximately $391.0 million.  Under the terms of our Credit Facility, the
borrowing base is subject to monthly adjustments based on current levels of
accounts receivable and inventory.  For additional information about the Credit
Facility, please see Note 4 - Debt in Part I, Item 1 "Financial Statements" of
this Quarterly Report.



                                      -41-
--------------------------------------------------------------------------------




Our primary uses of cash are for operating costs, capital expenditures and other
expenditures. The oilfield services business is capital-intensive, requiring
significant investment to maintain, upgrade and purchase equipment to meet our
customers' needs and industry demand. Our capital expenditures consist primarily
of:


• growth capital expenditures, which are capital expenditures made to acquire

additional equipment and other assets, increase our service lines, or advance

other strategic initiatives for the purpose of growing our business; and

• maintenance capital expenditures, which are capital expenditures related to

our existing equipment, such as refurbishment and other activities to extend

    the useful life of partially or fully depreciated assets.




In addition to our normal capital expenditures, there will be certain one-time
transaction costs and expenses related to the Merger, which will include, among
other things, fees and expenses of counsel, accountants, financial advisors and
other experts and advisors, fees and expenses incident to negotiation,
preparation and execution of the Merger Agreement and related documentation and
stockholders' meetings.



While we have not previously paid cash dividends on our common stock, on June
16, 2019, the Company's Board of Directors declared, subject to a future
determination by it that surplus exists under Delaware law, a cash dividend of
$1.00 per share of our common stock. If the Company's Board of Directors makes a
determination that we have sufficient surplus to pay the cash dividend, it will
be paid prior to the effective time of the Merger to the holders of record of
our common stock as of a record date to be established. There is no requirement
that the Board of Directors make a determination of sufficient surplus, or that
the cash dividend be paid (unless and until such determination is made).



Capital expenditures totaled $42.9 million in the second quarter of 2019,
primarily pertaining to maintenance capital expenditures for deployed equipment.
Based on current market conditions and assumptions on future customer demand, we
expect our 2019 capital expenditure budget to range between $140.0 million and
$160.0 million. We expect to fund our 2019 capital expenditure program primarily
with cash flows from operations and potential borrowings under our Credit
Facility. The amount of indebtedness we have outstanding at any time could limit
our ability to finance future growth and could adversely affect our operations
and financial condition. Based on our existing operating performance, we
currently believe that our cash flows from operations, cash on hand and
borrowings under our Credit Facility will be sufficient to meet our operational
and capital expenditure requirements over the next twelve months.



On July 31, 2018, the Company's Board of Directors approved a stock repurchase
program authorizing the repurchase, at the discretion of senior management, of
up to $150.0 million of the Company's common stock over the twelve month period
starting August 1, 2018 and ending July 31, 2019, in open market or in privately
negotiated transactions, subject to U.S. Securities and Exchange Commission
regulations, stock market conditions, capital needs of the business, and other
factors. During the life of the program, $40.4 million of total stock
repurchases were made (all initiated in 2018) at an average price of $16.55 per
share, representing a total of approximately 2.4 million shares of the Company's
common stock.


Financial Condition and Cash Flows

The net cash provided by or used in our operating, investing and financing activities is summarized below:



                                        Six Months Ended June 30,
                                          2019               2018
                                              (In thousands)
Cash provided by (used in):
Operating activities                  $      71,405$  134,727
Investing activities                        (88,512 )       (133,428 )
Financing activities                         (4,383 )         (5,337 )
Effect of exchange rate on cash                 118              193

Change in cash and cash equivalents $ (21,372 )$ (3,845 )

                                      -42-
--------------------------------------------------------------------------------

Cash Provided by Operating Activities




Net cash provided by operating activities was $71.4 million for the six months
ended June 30, 2019.  The inflow of cash was primarily from earnings before
non-cash items of $97.0 million and other positive changes in operating assets
and liabilities, offset by an increase in accounts receivable of $36.5 million
which we expect will provide meaningful cash conversion in the third quarter of
2019.



Net cash provided by operating activities was $134.7 million for the six months
ended June 30, 2018. The inflow of cash was primarily related to net income of
$49.1 million, adjustments for non-cash items of $114.6 million, $4.2 million
related to a federal income tax refund and positive changes in other operating
assets and liabilities primarily related to prepaid expenses and accounts
payable. These cash inflows were offset by $75.5 million of increased investment
in working capital (accounts receivable, inventory and payroll related costs and
accrued expenses) as a result of the increase in demand for our services across
all our segments for the first six months of 2018.



Cash Used in Investing Activities




Net cash used in investing activities was $88.5 million for the six months ended
June 30, 2019. The use of cash was primarily related to $91.3 million of capital
expenditures mostly for the maintenance of deployed equipment, offset by $2.8
million of proceeds from the normal course disposal of PP&E.



Net cash used in investing activities was $133.4 million for the six months
ended June 30, 2018.  The use of cash was related to $155.8 million of capital
expenditures for the refurbishment of existing stacked equipment and the
building of new equipment for our Completion and Well Construction and
Intervention Services segments, offset by $20.9 million of proceeds from the
disposal of PP&E and non-core service lines and a $1.5 million refund from a
working capital adjustment related to the O-Tex acquisition.



Cash Used in Financing Activities




Net cash used in financing activities was $4.4 million for the six months ended
June 30, 2019. The cash used was related to $3.3 million for the settlement of
share repurchases in connection with our stock repurchase program and $1.1
million of employee tax withholding on restricted stock vesting.



Net cash used in financing activities was $5.3 million for the six months ended
June 30, 2018. The cash used was primarily related to $3.1 million of cash paid
for financing costs related to our Credit Facility and $2.2 million of employee
tax withholding on restricted stock vesting.



Other Matters



Contractual Obligations



Our contractual obligations at June 30, 2019, did not change materially from
those disclosed in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Contractual Obligations" of our 2018
Annual Report.



Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, as of June 30, 2019.

                                      -43-
--------------------------------------------------------------------------------

Recent Accounting Pronouncements




In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU
2016-13"), which amends U.S. GAAP by introducing a new impairment model for
financial instruments that is based on expected credit losses rather than
incurred credit losses.  The new impairment model applies to most financial
assets, including trade accounts receivable.  In May 2019, the FASB issued ASU
No. 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted
Transition Relief ("ASU 2019-05"), which clarifies certain aspects of the
amendments in ASU 2016-13.  These amendments are effective for interim and
annual reporting periods beginning after December 15, 2019, although it may be
adopted one year earlier, and requires a modified retrospective transition
approach.  We do not anticipate the adoption of this standard to have a material
impact on our consolidated financial statements.



In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting
Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income ("ASU 2018-02"), which allows for a
reclassification from accumulated other comprehensive income to retained
earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and
requires certain disclosures about stranded tax effects. ASU 2018-02 is
effective for the interim and annual reporting periods beginning after December
15, 2019, and early adoption is permitted. We do not anticipate the adoption of
this standard to have a material impact on our consolidated financial
statements.



In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU
2018-07"), which expands the scope of Topic 718 to include all share-based
payment transactions for acquiring goods and services from nonemployees. ASU
2018-07 is effective for the interim and annual reporting periods beginning
after December 15, 2018. We adopted this new accounting standard January 1,
2019, and there was no impact on our consolidated financial statements upon
adoption.



In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic
820):  Disclosure Framework-Changes to the Disclosure Requirements for Fair
Value Measurement ("ASU 2018-13"), which modifies the disclosure requirements
for fair value measurements, such as requiring additional disclosure around
changes in unrealized gains and losses included in other comprehensive income
for Level 3 fair value measurements, as well as additional disclosure around the
range and weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements. ASU 2018-13 is effective for the interim and
annual reporting periods beginning after December 15, 2019, and early adoption
is permitted.  We do not anticipate the adoption of this standard to have a
material impact on our consolidated financial statements.



In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and
Other Internal-Use Software (Subtopic 350-50): Customer's Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service
Contract ("ASU 2018-15"), which aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service
contract with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software. ASU 2018-15 is effective for the
interim and annual reporting periods beginning after December 15, 2019, and
early adoption is permitted. We adopted this new accounting standard effective
January 1, 2019, and there was no impact to our consolidated financial
statements upon adoption.



                                      -44-

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